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Watson, Farley & Williams, LLP

Is the OFT Prioritising "Headlines" over "Help"?
On 22 June 2006 the OFT announced that it is conducting both a criminal and civil investigation into alleged price coordination by airlines in relation to fuel surcharges for long haul passenger flights to and from the UK. One of the firms identified as being investigated is British Airways (“BA”). Earlier this year BA was investigated by the US and EU authorities for alleged price fixing and collusion over fuel surcharges and other levies for cargo handling. That investigation is ongoing. BA has commented that its policy “is to conduct its business in full compliance with all the applicable competition laws”. Since the OFT announced its own investigation into alleged price fixing of fuel surcharges, however, there has been intense press speculation in the UK about the extent of BA’s involvement. Rumours abounded that the OFT had been “tipped off” by BA’s rival, Virgin Atlantic. The broadsheets reported that “at some point during the past six months Virgin Atlantic contacted the OFT to say that it had been called by a BA executive to discuss the timing and level of increases in the long-haul ticket surcharges being levied by both airlines in order to recoup the soaring costs of aviation fuel”. Instead of immediately confronting BA following the tip-off, the OFT reportedly decided to keep quiet and probe further. It apparently alerted authorities in the US and together investigators on both sides of the Atlantic launched a covert evidence-gathering operation that lasted for several months. The OFT’s civil investigation is being conducted under the Competition Act 1998 and Article 81 of the EC Treaty and the criminal investigation under the Enterprise Act 2002. The OFT has confirmed that its investigation is at an early stage so no assumption should be made that there has been an infringement of competition law. It will not be in a position to conclude whether the law has been infringed until it has completed its investigations and assessed the available evidence.

None doubt the OFT when it claims that its resources are severely stretched and that it must, therefore, be very picky about the cases it chooses to pursue. So why this one? Clearly, there are overlaps between this case and the US and EU investigations. No doubt the OFT will be asked to intervene with these and assist where necessary. As for its own investigation, the evidence of price fixing (based on press reports) appears somewhat tenuous. In order to infringe the prohibition against anti-competitive agreements, companies must agree to fix prices. If Virgin really did receive a phone call from BA related to pricing issues and immediately contacted the OFT, it is difficult to identify any consensual arrangement to match prices accordingly. Suggesting a fix is not enough, BA and Virgin had to agree. It is understandable that observers might be suspicious about collusion between Virgin and BA on the London-US routes as both charge a fuel supplement of £35. Industry experts, however, consider that there are good reasons for the airlines to mirror each other’s behaviour, noting that this is as much evidence of fierce competition as it is of collusion. Indeed, analysts in the aviation sector suggest that they would be surprised if a specific issue relating to BA’s pricing has developed as there are several good reasons why airlines put up their prices in tandem. Moreover, this is a global phenomenon rather than being a characteristic of routes between the US and UK. There is a hint here that the OFT may have gone headline hunting. Pursuing BA garnered the OFT the lead-off slot in most television news broadcasts that day. No harm there - the OFT could do with a morale boost. The more pertinent question, however, is whether the OFT’s time would be better spent fixing truly corrupted but less glamorous sectors than seeking a mention by John Humphrys.

07-17-2006

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Hinshaw & Culbertson, L.L.P.

CMS Issues Hospital Inpatient Prospective Payment System Proposed Rule for Fiscal Year 2007
The Center for Medicare and Medicaid Services recently issued the Hospital Inpatient Prospective Payment System (IPPS) Proposed Rule for fiscal year 2007. The proposed changes reflect recommendations from the Medicare Payment Advisory Commission (MedPac). These reforms may significantly affect hospitals depending on the types of services hospitals offer.

The IPPS rules attempt to better recognize the severity of illnesses among patients. However, by doing this, the rules may affect the rates received by hospitals for certain services. Scheduled for implementation in fiscal year 2008, the current 526 diagnosis-related groups (DRGs) would be replaced with the proposed 861 consolidated severity adjusted DRGs, or an alternative severity adjusted DRG system developed in response to public comments solicited by CMS. The impact of creating the increased numbers of DRGs with the severity weighting system will vary from hospital to hospital. Commentators have suggested cardiovascular cases may be big losers, as well as device-dependent cases. These same commentators also have suggested that in this revised system, medical DRGs may be winners and surgical DRGs may be losers.

Another goal of the proposed rules was to make more transparent pricing and quality information. The options under the proposed rules include: 1) publishing hospital charges in every region of the country; 2) publishing the rates that CMS pays to individual hospitals for every DRG or for selected DRGs, adjusted to take into account the hospital’s labor market area, teaching hospital status and disproportionate share hospital status; 3) establishing hospital conditions of participation that require hospitals to post their prices and/or post their policies regarding discounts or other assistance for uninsured patients; and 4) publishing the total cost for an episode of care.

CMS also is proposing to modify the current requirement that only a physician is authorized to determine whether a pregnant woman having contractions is in false labor. In the proposed rules, CMS wants to allow hospitals the flexibility to use certified nurse midwives or other qualified nonphysicians acting within the scope of their practice. In the proposed requirement, this category of qualified nonphysicians must be included in a hospital’s Medical Staff Bylaws and be permitted by state law to determine whether a woman having contractions is in false labor.

CMS welcomed public comment until June 12, 2006 on all issues set forth in the proposed rule to assist the agency in developing the final rule. CMS proposes to respond to public comments in the final rule. Publication of the FY 2007 IPPS final rule is expected on or about August 1, 2006.

07-17-2006

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Hinshaw & Culbertson, L.L.P.

Former Attorney Who Previously Represented Government Agency as Outside Counsel May Represent New Clients in the Same Type of Case Against Agency
Brief Summary
The appellate court held that a lawyer who represented a local appraisal district for two decades was not prohibited from accepting cases against the appraisal district once the representation of the district had ended.

Complete Summary
For nearly 22 years, Dennis Drake represented the Bexar County Appraisal District (“BCAD”) in property tax disputes as BCAD’s outside counsel. In 2003, the representation ended.

In 2004, Mr. Drake began representing new clients in property tax lawsuits against BCAD. BCAD filed motions to disqualify Mr. Drake on the ground that he was in violation of Texas Disciplinary Rules 1.05 and 1.09. Rule 1.09 provides that an attorney may not, without prior consent, represent a client in a way that is adverse to a former client, if the new representation will involve a violation of Rule 1.05 (regarding confidentiality) or if the former and current representation involve the “same or substantially similar” matters.

The appellate court held that a party seeking disqualification under Rule 1.09 must show that, “during the existence of the attorney-client relationship, factual matters were involved that are so related to the facts in the pending litigation that a genuine threat now exists that confidences revealed to a former attorney will be divulged to (the former client’s) present adversary.” (2006 WL 333993 at 2.)

The court further held that the moving party must show with specificity the subject matter, issues and causes of action presented in the prior representation. If the burden is met, the movant is entitled to a conclusive presumption that the former attorney was provided with client confidences and secrets. “Superficial resemblances” between the cases are insufficient to establish the presumption. (Id.)

The appellate court determined that the trial court’s order contained no similar underlying “facts” but merely listed various “similarities” between the former and present matters. Therefore, the trial court’s findings “fell short of the requisites of the established substantial relation standard.” (Id. at 3.) Therefore, Mr. Drake was not subject to the conclusive presumption and was not subject to disqualification.

The appellate court also held that there was no basis for disqualifying Mr. Drake under Rule 1.05 since Mr. Drake did not obtain any confidential information about the value of his current clients’ property while representing BCAD, and property valuation was the subject of the new matters.

Significance of the Case
Although a lawyer cannot switch sides in a single case, it often is unclear when side-switching is prohibited over time. This court, at least, held that in the absence of specific reasons to reach a different result, even two decades of representation can be disregarded when a lawyer ends one client relationship and begins others.

07-17-2006

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Hinshaw & Culbertson, L.L.P.

Illinois Governor Signs Fair Patient Billing Act
On June 20, Illinois Governor Rod Blagojevich signed the Fair Patient Billing Act, Public Act 094-0885. The purpose of the Act is to advance the prompt and accurate payment of health care services through fair and reasonable billing and collection practices of hospitals. The Act imposes several obligations on hospitals and will require hospitals to possibly adjust some of their internal procedures. While the Act becomes effective January 1, 2007, hospitals have until July 1, 2007, to implement appropriate policies and procedures to comply with the new obligations under the Act. It should be noted that there will be proposed rules, yet to be published, by the Attorney Generals Office implementing the provisions of the Act.

The obligations imposed upon hospitals involve: 1) patient notification; 2) billing information; 3) how hospitals may pursue collection against uninsured and insured patients and any limitations thereon; 4) notification to patients receiving services from out-of-network providers.

In addition, the Act details certain responsibilities for patients if they are to receive the benefits and protections of this new Act.

Patient Notification

Hospitals are required to post a sign with the following notice:

""You may be eligible for financial assistance under the terms and conditions the Hospital offers to qualified patients. For more information, contact (Hospital financial assistance representative).""

This sign is to be posted conspicuously in the Admission and Registration areas of hospitals. In addition to English, this sign should be in any other language that is the primary language of at least 5 percent of the patients served by a particular hospital annually.

For hospitals that have a Web site, the site must prominently disclose that financial assistance is available at the hospital. The site must also contain a description of the financial assistance application process and a copy of the financial assistance application.

Furthermore, each hospital must make available information regarding financial assistance from the hospital in the form of a brochure, an application for financial assistance, or other written material that is displayed in the hospital admission or registration areas.

Billing Information

The second major component of this legislation involves providing billing information. Hospital bills for services must provide the following information: 1) the date or dates that the health care services were provided to the patient; 2) a brief description of the hospital services; 3) the amount owed for hospital services; 4) hospital contact information for addressing billing inquiries; 5) a statement regarding how uninsured patients may apply for consideration under the hospital's financial assistance policy (on or with each bill sent to an uninsured patient); and, 6) notice that the patient may obtain an itemized bill upon request.

Hospitals are required to implement a process for patients to inquire about a disputed bill. While many hospitals have procedures in place, these should now be communicated in writing and must include the following:

1.
A telephone number for billing inquiries and disputes that may include any of the following options:

a toll-free telephone number that the patient may call
an address to which the patient may write
a department or identified individual within the hospital to whom the patient may write with appropriate contact information; or,
a Web site or e-mail address.
2.
A telephone number on all hospital bills and collection notices allowing the patient to inquire about or dispute the bill.

In addition, the hospital must return calls made by patients as promptly as possible, but no later than two business days after the call is made. If a billing inquiry involves correspondence from the patient, the hospital must respond within 10 business days of receipt of the patient's correspondence. Hospitals will not face the penalties under the Act if they miss either the two- or the 10-day deadline, provided there is no pattern of practice regarding those missed deadlines.

Collection Activity Against Patients

The third major component of the legislation places limitations on hospitals collecting from patients. Hospitals and their agents are permitted to pursue collection actions against uninsured patients only if the hospital first meets the conditions required under the Act. These conditions include:

1.
Giving the uninsured patient the opportunity to assess the accuracy of the bill, apply for financial assistance under the hospital's financial assistance policy, and establish a reasonable payment plan.

2.
If the uninsured patient has indicated an inability to pay the full amount in one payment, the hospital must offer the patient a reasonable payment plan.

3.
To the extent the hospital provides financial assistance and the circumstances of the uninsured patient suggest the potential for eligibility for charity care, the uninsured patient must be given at least 60 days following the date of discharge or receipt of outpatient care to submit an application for financial assistance.

4.
If the uninsured patient has agreed to a reasonable payment plan with the hospital and the patient has failed to make payments in accordance with a reasonable payment plan, the hospital may commence collection activity.

5.
If the uninsured patient informs the hospital that he or she has applied for health care coverage under a government-sponsored healthcare program such as Medicare, Medicaid or Kidcare, and there is a reasonable basis to believe the patient will qualify for such program, the hospital may not pursue collection against the patient until the application for government benefits is denied. If the patient has a liability claim in addition to having applied for benefits under a government-funded healthcare program, the Act does not prohibit a hospital from filing a lien under the Health Care Services Lien Act.


A hospital may not refer a bill or a portion thereof to a collection agency or to an attorney for collection action against an insured patient without first offering the patient the opportunity to request a reasonable payment plan for the amount personally owed by the patient. Such an opportunity shall be made available for 30 days following the date of the initial bill. If the patient requests a reasonable payment plan, the hospital must give the patient at least 30 days to agree to payment terms, before commencing collection. No collection agency, law firm or individual may initiate legal action for nonpayment of a hospital bill against a patient without the written approval of an authorized hospital employee, who reasonably believes the conditions for pursuing a collection action under this Act have been met. Therefore, hospitals must revise their collection policy to ensure the obligations under the Act are met.

In addition, hospitals should have a designated official at the hospital who signs off on all matters sent to collection agencies. Furthermore, hospitals now must ensure that any external collection agency, law firm or individual engaged to obtain payment for the benefit of the hospital, agrees in writing to comply with the collection provisions of this Act. Therefore, hospitals that have contracts with collection agencies will need to amend those contracts to include appropriate representations and warranties from the collection agencies as to their compliance with the provisions of the Act.

Finally, hospitals are not permitted to pursue legal action for non-payment of a hospital bill of an uninsured patient who has clearly demonstrated that he or she has neither sufficient income nor assets to meet the financial obligation, provided the patient has complied with the patient's obligations under the Act.

Notification of Out-of-Network Providers

The fourth major provision of the Act involves notifications concerning out-of-network providers. Hospitals must now provide an insured patient with written notice that: 1) the patient may receive separate bills for services provided by health care professionals affiliated with the hospital; 2) if applicable, some hospital staff members may not be participating providers in the same insurance plan as the network of the hospital; 3) if applicable, the patient may have a greater financial responsibility for services provided by those individuals at the hospital that are not under contract with the patient's health care plan; and 4) questions about coverage or benefit plans should be directed to the patient's health care plan and the patient's certificate of coverage.

This provision may require hospitals to modify their admissions process so that these notifications are provided at the time of admission and the time of service in outpatient situations. Revisions to the consent form or providing a patient with a brochure outlining the information at the time of admission can be ways to accomplish the above provision.

Patient Responsibilities

The fifth major provision of the Act limits the protection and benefits of the Act to patients who act reasonably and cooperate in good faith by providing the hospital with all reasonably requested financial and other relevant documentation needed to determine the patient's eligibility for financial assistance. The patient must produce the information and documents requested within 30 days of request.

Enforcement

The Act is to be enforced, including the development of rules for implementation, by the Attorney Generals Office. The Attorney General may conduct investigations deemed necessary regarding possible violations of the Act by hospitals. The Attorney General may issue subpoenas to require hospitals to file a statement or a report or to answer interrogatories, examine hospital personnel who possess knowledge or information related to the violations under oath, and examine records, books, documents, etc. If the Attorney General determines that there is reason to believe that the hospital has violated the Act, the Attorney General may bring an action in the name of the People of the State of Illinois against the hospital. In addition, the Attorney General may seek assessment of civil monetary penalties in any action filed under the Act where a hospital knowingly violates the Act.

For violations involving a pattern of practice of not providing the information to patients under the patient notification section, the billing information section, the billing inquiry section, and the notification of out-of-network provider section, civil monetary penalties shall not exceed $500 per violation. This penalty is for each violation. If the hospital has not developed appropriate protocols, the amount could quickly add up. For violations involving the failure to engage in or refrain from certain activities involving collection actions, the civil monetary penalty shall not exceed $1,000 per violation.

Hospitals are urged to examine the provisions of this legislation and develop appropriate policies and procedures to ensure compliance.

07-17-2006

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Hinshaw & Culbertson, L.L.P.

Illinois Supreme Court Holds "Lost" Punitive Damages Not Recoverable as Compensable Damages in Subsequent Legal Malpractice Action
Brief Summary
The Illinois Supreme Court held that a lawyer may not be held liable for punitive damages that, but for the lawyer’s negligence, might have been awarded against a third party. This holding is consistent with the results reached in California in Ferguson v. Lieff, Cabraser, Heimann & Berstein, LLP, 30 Cal.4th 1037, 69 P.3d 965, Cal. Rptr. 2d 46 (2003) and in New York in Summerville v. Lipsig, 270 A.D.2d 213, 704 N.Y.S. 2d 598 (2000).

Summary
The law firm of Burke, Bosselman & Weaver represented Tri-G, Inc. in a suit against Elgin Federal Savings & Loan for fraud and breach of contract related to a real estate transaction. Tri-G had retained several different firms before engaging Burke, Bosselman, and the trial had been continued several times. Tri-G retained Burke, Bosselman approximately four months before the trial date. When the case was called for trial, the Burke, Bosselman partner indicated he was not ready to proceed and requested a continuance. The trial court refused the request and dismissed the case with prejudice. Tri-G filed a malpractice action against Burke, Bosselman, alleging that it was negligent in handling the underlying case.

In the malpractice trial, the circuit court held the proverbial “trial within a trial” and permitted the jury to determine what amount Tri-G would have obtained from Elgin Federal, but for Burke, Bosselman’s negligence, including both compensatory and punitive damages. The result was a verdict of $2,337,550 against Burke, Bosselman, half of which was for punitive damages that the malpractice jury thought would have been assessed against Elgin Federal but for Burke, Bosselman’s legal malpractice.

On appeal, the Second District held, over a strong dissent, that attorneys may be held liable to their clients for “lost” punitive damages which might have been awarded against an opponent in litigation because they were “compensatory” damages in the context of legal malpractice doctrine. Burke, Bosselman then filed a Petition for Leave to Appeal to the Illinois Supreme Court.

Burke, Bosselman argued that the Illinois Supreme Court should adopt the approaches taken in California in Ferguson, supra, and in New York in Summerville, supra. Burke, Bosselman argued shifting punishment from the wrongdoer in the underlying case to the law firm in the legal malpractice action “does not make the punishment less punitive” but makes “the punishment unjust because it is inflicted on the wrong party.” 2006 WL 1702282, at * 24. Burke, Bosselman argued the Restatement (Third) of the Law Governing Lawyers provides that a lost opportunity to punish should not be recoverable from someone other than the person for whom the punishment was intended. Id. Burke, Bosselman also relied on §2-115 of the Illinois Code of Civil Procedure which bars the recovery of punitive damages in a legal malpractice action. Id.

Although noting that the issue presented was one “on which reasonable minds can certainly disagree,” the Illinois Supreme Court rejected the appellate court’s decision on the recovery of lost punitive damages as compensatory damages. Id., at *24-6. The court reasoned Burke, Bosselman “was not a wanton or malicious wrongdoer. Elgin Federal was. Elgin Federal, however, will bear none of the consequences of its wrongdoing. If the punitive damages award is allowed to stand, those consequences will fall entirely on Burke, Bosselman.” Id., at *24. The court aptly noted the policy considerations upon which punitive damages are based serve to punish and deter the offender from committing future wrongdoings; to allow Tri-G to recover its lost punitive damages from Burke, Bosselman “would not advance that policy in any way.” Id., at *25. The Court also agreed that Tri-G could not avoid the effects of §2-115 because the punitive damages represented allegedly lost damages from a third party. Id.

The majority opinion by Justice Karmeier provoked a strong partial dissent by Justice Freeman in which Justices McMorrow and Fitzgerald concurred. The dissent considered the “reference to the nature of compensatory damages to be more helpful in resolving the case.” Id., at *27. The dissent also gave weight to “the decisions that allow the recovery of lost punitive damages in the underlying case as an element of compensatory damages” finding them “better reasoned.” Id., at *28. In the view of the dissent, allowing the recovery of “lost” punitive damages was more consistent with the fundamental principle of tort law. Id.

Significance
The issue of “lost” punitive damages has been addressed in a number of states and likely will be addressed in others. Although the Illinois Supreme Court observed that this is an issue about which reasonable minds can disagree, we note that the result reached by the court is consistent taken by this firm in the amicus brief submitted on behalf of The Illinois Association of Defense Trial Counsel.

07-17-2006

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Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

Accentuating China's IP Positives
The enforcement of IP rights in the People's Republic of China is highlighted in a Managing IP article written by Patrick Coyne and Ningling Wang. The Chinese enforcement system is a civil law system that relies heavily on administrative expertise, unlike the U.S., UK or other European systems. In spite of its flaws and criticisms it regularly receives, China is making substantial progress and offers very real and substantial IP enforcement options.

07-17-2006

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Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

The Extraterritorial Reach of U.S. Patents: Implications for the Global Marketplace
Finnegan Henderson lawyer Gregory Gramenopoulos and student associate Frank Italiano authored a BNA International IP & Technology Programme article that discusses the impact of recent case law and congressional actions on the extraterritorial reach of U.S. patents. The article shows that understanding the boundaries of U.S. patents is critical for avoiding liability and protecting key intellectual property.

07-17-2006

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